International Trade Growth - Essay Example

International Trade Growth: UAE Vs USA Introduction World economic development ification divides countries into three main es in terms of economic status. For a long time, the world economy has been dominated by some few countries that belong to the top level class. Development status of these top level achievers has been used in placing a tag of first world countries. The lowest level class of countries variously referred to as third world countries on the other hand have been labeled as undeveloped due to poor performance in economic developments. Things have changed over the years since many of the lowest ranked economic performers have relentlessly worked towards their economic growth to come out of the designated classes. The most vigorous world economies at the moment are the emerging economies all of which come from the third world countries. Mixed fortunes have continued to face the first world countries on the other hand, with some receding to serious economic crisis in the recent past. Decisions to bail out major industrial players in some the popular first world economies characterize the volatility of their performance amid global economic hick ups. In this study, a comparison of economic growth for two model countries from both extreme economic class ends has been used to demonstrate the real picture on the ground. The world economy is shifting opportunities from the earlier domination by first world countries on to the emerging economies. Economic growth prospects held by each of these countries is likely to affect the overall performance of the national economies posted by the two conditions experienced with UAE expected to post growth. “…following the Dubai World debt announcement made last year, a new report by Business Monitor International has predicted… while it expected the UAE to return to growth this year following an estimated 2.7 per cent contraction in 2009…” (Sambidge, 2010) Based on the current economic trends, the following research question has been formulated; is Dubai the future hub of international business and commerce? Research Overview The United States has been the world’s leading economy dominating global commerce directly or indirectly to make billions of dollars. The general performance of the USA relative to other countries especially the emerging economies such as the United Arabs Emirates points at some major economic disparities. A World Bank “Doing Business” report released in November 2010 ranked Dubai as the third best global economy offering the necessary environment for international trading. “…Chairman of Dubai Trade, today (Wednesday November 10) welcomed a World Bank report that ranks UAE as the 3rd best country in the world for enabling trading across borders…” (albawaba.com). Questions could arise why it was not announced in favor of one of first world country economies. Economic performance trends attracting investment into the country will facilitate economic growth needed by the third world countries to surpass the first world countries. Reports of continued economic weaknesses of the USA dollar on the other hand are likely to spur negative response from the investors. Reports have indicated that the USA is at loggerheads with China over the weakening of the dollar which places China at a disadvantage when carrying out international transactions with the USA. Negative reports about the performance of the economy by first world countries will spur a shift in investment patterns favoring third world countries. It is therefore logical to project that economic growth achieved by the UAE in the recent past is reason enough to label Dubai the future hub of international business and commerce. “…in fact, these advantages not only rank Dubai as the Arabian Gulf’s leading multi-purpose business center and regional hub city, but they place it at the forefront of the globe’s, dynamic and emerging market economies...” (Government of Dubai, 2010). Analysis The UAE Economic conditions in the UAE and the investment environment that the country enjoys provide the most promising development prospect not only in the region but also across the world. Growth in the past few decades has posted dramatic results which has been a major strength in luring more investment in Dubai. Besides proving to be an investment hub in the region, it a fact that major world emerging economies are located in Asia and Dubai is in a strategic location facilitating the growth. The UAE is one of the few places in the Arabian Gulf without significant security issues, bearing in mind that the region is almost synonymous with insecurity. Crime and international terrorism led by religion extremism characterizing the region are contained in the UAE. World business can not thrive in any region that does not assure investors that such conditions will be offered. Dubai has gone a notch higher by having a clean international relations record, especially with major world influential economies unlike many countries in the region. Political instability in the Middle East laves Dubai as a lone country in the region likely to offer favorable environment for international business (Popper, 2010). Competition for international investment in the region has a comparative advantage on the UAE which boasts political stability as well as good international relations. Economic sustainability and stability that the country has established over the past few decades provide a favorable environment that is ideal for international investment. A sophisticated banking infrastructure developed to take care of business operations will act as a booster for financial confidence among prospective investors from any part of the globe. Support obtained from the government in provision of a favorable investment environment in Dubai is unmatched by many countries in the region and far. Industrial relations supporting investment and promoting the spirit of international cooperation and integration of foreign investment into the economy are likely offer a rare opportunity in UAE. Government interference with the market situation is negligible in Dubai, a major contrast in the politically unstable region. Free market conditions characterize the Dubai economy, which provides for ownership of businesses and companies in the country are favorable by any standards. Foreign ownership for companies is allowed from fifty to a hundred per cent depending on legal status of the company. “Foreigners are permitted ownership rights of up to 49% for limited liability companies established within the Emirate of Dubai and up to 100% for professional companies, branches and representative offices of foreign companies and free zones enterprises,” (Government of Dubai, 2010) Fewer trade restrictions, barriers and unfavorable exchange controls exist in Dubai illustrating the commitment of the government to promote political incentives to investors. Regarding infrastructure needed to support business operations and logistics, the UAE has one of the leading world class services in the region. Dubai is currently accessible by over a hundred and twenty sea routes covering the global sea travel by a large proportion. About ninety air travel routes access Dubai extending the air coverage to over one hundred and thirty countries across the globe. The port of Dubai offers once of the most efficient services across the world and its sea routes have recently entered the luxury shipping industry, despite piracy threat lingering in the neighboring Indian Ocean. Energy solutions adopted by the UAE backed by an efficient telecommunication infrastructure are one of the best in the region (Carter and Dunston, 2006). With the controversial debate of nuclear energy exploitation by some neighboring countries such as Iran likely to persist in the region, Dubai’s energy policies will prove to be internationally friendly for investment. Highway network modernization coupled with secure airport infrastructure prepared to handle any world class market complement the port system in term of logistics. The service sector in the UAE has evolved over the years to offer a world class facelift to tackle shipping and freight demands at a complex level. Hospitality and tourism services offered in the region have created a rare niche market that handles the international business excellently. Conference infrastructure and exhibition facilities targeting the international business market are world class stories that only Dubai can boast of in the region. Export and re-export market niche has enabled the country to enjoy the emerging market economy benefits enjoyed by other leading economies, falling only to the third spot. This market niche has evolved to be the leading global market in terms of market access covering a wide range of products. Continued diversification of the market sub sectors to integrate the whole of Dubai’s economy on an international model offers a huge opportunity for further growth. This means that the UAE growth will continue to enjoy positive fortunes at least until the market sub-sectors have been incorporated. On average, the annual growth trend for international trade has steadily been at eleven per cent since 1988, with globalization offering the catalytic conditions needed for positive growth. The United Sates Prospects of the US international trade growth have in the recent past been faced by two serious threats. Volatile world economic state as well as high debt levels causing consumer and investor speculation and uncertainties on the strength of the economy. According to the Economy Watch, competition by the European Union and China for the world trade eventually erodes the dominance that the US has enjoyed for yeas now. National debt at the start of 2008 was standing at over nine trillion US dollars. The poor show of the dollar against major world currencies is an indicator of difficult times ahead for the US economy. Possible investment in the US continually seems like a gamble with the turn of events at international trade competition (“Business Destination Profile”, 2009). If currency issues between the US and its creditors are anything to go by, then the US economy is as volatile as a weak economy could be. Optimism of the US leadership has possibly been the reason of the slight turnaround by the hard hit economy by the 2008 economic crisis. Failures in many national and international policies have also had a share of the spoil on the economy. The control of the federal government on exchange rate and other trade restrictions especially on international market greatly limits the US trade with some viable markets. Political approach for economic issues at the international level has continued to constrict the opportunities of growth for international market. Government control of the market particularly the energy and agricultural sectors leave investors in the confusion of market definition of free markets. “Property values in the U.S. could fall even further if Dubais cash-strapped development arm is forced to sell off prized commercial real estate holdings here. And if the debt crisis worsens- and many expect it will- European banks with significant real estate exposure in Dubai could very well curtail their lending in the U.S.A” (Windham, 2010). The growth rate at the national level was nil in the year 2008 and at 2009 a negative figure of over two and a half percent was posted by the US economy. Unemployment rate grew from about 5.8 percent in the year 2008 to about 9.3 per cent in 2009, illustrating the impact of volatile world economy performance on the national economy. Discussion Despite there being a general decline in the posted growth of economic performance by world economies, mixed fortunes were experienced by different states. The UAE posted positive growth figures while the USA posted negative figures in the same period, despite both countries facing similar economic times at the global level. The relative shielding effect that UAE market enjoyed from harsh economic times could be used by investors in determining investments destinations. According to Campbell (2010), despite UAE enjoying an advantageous growth position for international trade, the USA continues to boast the biggest world economy at its control. However, some resource endowment such as oil places Dubai at an advantage, which is even better when diversified and complemented with other income making projects. “…He said while oil is largely responsible for making Dubai a jewel in the UAE crown, the vision of its leader, Prime Minister Mahmoud bin Rashid Al Maktoum, must not be overlooked. With its oil reserves projected to diminish significantly in less than 10 years, Thwaites said Al Maktoum is preparing to tap into other areas…” Campbell (2010). Huge economies like the USA are likely to melt away economic hardships just like they can be melted down. This implies that recovery of the US economy is imminent and investor confidence has begun to build up. Sambidge (2010) reported that Dubai was facing economic hardships due to debts amounting to over twenty six billion US dollars. Global economic crisis will continue to affect Dubai’s performance as long as international trade is a part of the economic foundation of UAE. The bigger the economy grows and integrated in the word trade operations, the more prone it is likely to be to international economic volatility. “Governor Sultan Nasser al Suweidi said the central bank expected the growth rate in 2009 to be "slim", while the 2010 rate would be "low" but better than in 2009. Last month, Shuaa Capital’s UAE Vision 2010 report said the Dubai economy would contract by 0.4 percent year-on-year this year, following on from a five percent contraction last year,” (Sambidge, 2010). Conclusion The comparison can be summed up stating the Dubai is the future hub of international trade and commerce due to the advantage that the UAE enjoys as an emerging global economy. The opportunity that the country holds in the region and in the entire world hoists it to a global leader that only a little time acts as the hindrance. The political instability of the entire region of Middle East is however likely to act as a hindrance to full capacity of Dubai as a leading global economic player. References "UAE ranked 3rd Best in World Bank report on Trade across Borders." Albawaba.com 10 Nov. 2010. Expanded Academic ASAP. Retrieved from http://find.galegroup.com.cat1.lib.trentu.ca:8080/gtx/infomark.do?&contentSet=IAC-Documents&type=retrieve&tabID=T004&prodId=EAIM&docId=A241820057&source=gale&srcprod=EAIM&userGroupName=trentu_main&version=1.0 “Why Choose Dubai as an Investment Location?” Government of Dubai 23 Nov. 2010 Retrieved from http://www.dubai.ae/en.portal?topic,Article_000239,0,&_nfpb=true&_pageLabel=home Windham, C. (2010) “Collateral Damage.” USBanker, 120(3):33 Campbell, H. (2008) “Look to Dubai for Answers.” The Weekly Gleaner, 1718(1):14 Popper, N. (2007) “As Dubai Heats Up, Is Israel Frozen Out?” Forward, 111(31683):A1-2 Carter, T., & Dunston, L. (2006) Dubai. New York, NY: Lonely Planet Publishers “Business Destination Profile.” March 2009. intheblack Melbourne, 79(2):12 Sambidge, A. (2010, Feb. 9) Dubai Economy Faces Tough 2010- Report. Arabian business.com. Retrieved from http://www.arabianbusiness.com/dubai-economy-faces-tough-2010-report-9474.html, Read More